Mark Latham Commodity Equity Intelligence Service

Friday 11th March 2016
Background Stories on www.commodityintelligence.com

News and Views:

Attached Files








    Macro

    China:Debt for Equity.

    China's central bank is preparing regulations that would allow commercial lenders to swap non-performing loans of companies for stakes in those firms, two people with direct knowledge of the new policy told Reuters.

    The new rules would reduce commercial banks' non-performing loan (NPL) ratios, and free up cash for fresh lending for investment in a new wave of infrastructure products and factory upgrades that the government hopes will rejuvenate the world's second-largest economy.

    NPLs surged to a decade-high last year as China's economy grew at its slowest pace in a quarter of a century. Official data showed banks held more than 4 trillion yuan ($614 billion) in NPLs and "special mention" loans, or debts that could sour, at the year-end.

    The sources, who spoke on condition of anonymity, said the release of a new document explaining the regulatory change was imminent. The People's Bank of China (PBOC) did not immediately respond to requests for comment.

    "Such a rule change shows banks' bad loans have risen to such a level that this issue has to be tackled now before it's too late," said Wu Kan, Shanghai-based head of equity trading at investment firm Shanshan Finance.

    State banks have extended loans to government financing vehicles and state-owned coal and steel producers, so this policy can help give lenders time to deal with non-performing assets as China pushes supply-side reforms, Wu added.

    The quality of assets held by banks is worse than it looks, analysts have said. To avoid stumping up capital and to protect their balance sheets, some banks have under-reported bad loans and under-recognized overdue debt.

    The top banking regulator has warned commercial lenders to pay special attention to risks.

    Back to Top

    China's oil giant, Alibaba to jointly offer 'smart energy' services


    Open up the app on your cellphone and pay your gas bill with just one tap.

    That is what possibly could be achieved through a partnership between China's energy giant China National Petroleum Corporation (CNPC), Alibaba and its Internet finance arm Ant Financial, after the two sides signed an official agreement on Thursday.

    According to a statement published on CNPC website, the partnership will focus on online maps, logistics, Internet payment, and membership sharing.

    CNPC PetroChina already allows customers to add credit to their pre-paid gas cards through Ant Financial's Alipay, one of the country's leading mobile payment systems.

    This agreement is a new approach by CNPC in its battle against low oil prices and signals a desire by both sides to transform the oil and gas industry, the statement said.

    China is transforming its energy sector with the help of the Internet. A guideline on the "Internet Plus" strategy released by the State Council last year has listed "smart energy" as one of its 11 priorities.

    CNPC and Alibaba are attempting to a system that improves the customer experience by meeting their demand, the statement said.

    For Alibaba, the partnership could also mean an expansion of its logistics network, with PetroChina's over 20,000 gas stations countrywide.

    http://en.chinamining.com.cn/News/2016-03-11/1457660387d75596.html

    Attached Files
    Back to Top

    Ethane leaves Us from Marcus Hook. Chemical execs in denial.

    Ineos's first US shale gas shipment to arrive in Norway soon

    12:50 AM MST | March 10, 2016 | Natasha Alperowicz

    The Ineos Intrepid, the world’s largest LNG multi gas carrier, on Wednesday left the Markus Hook terminal near Philadelphia bound for Rafnes, Norway carrying 27,500 cubic meters of US shale gas ethane. The shale gas is cooled to -90ºC for the journey of 3,800 miles, which is expected to take 9-10 days.  US shale gas will complement the declining gas feed from the North Sea. “This is an important day for Ineos and Europe. We know that shale gas economics revitalized US manufacturing and for the first time Europe can access this important energy and raw material source too,” says Jim Ratcliffe, chairman and founder of Ineos.This is the first time that US shale gas has ever been imported into Europe.   The Ineos Intrepid is one of four specially designed Dragon class ships that will form part of a fleet of eight of the world’s largest ethane carriers. The Ineos Intrepid has “Shale Gas for Progress” emblazoned along its 180 metre length. “Shale gas economics has revitalised US manufacturing. When US shale gas arrives in Europe, it has the potential to do the same for European manufacturing,” Ratcliffe says.    The project has included the long-term chartering of eight Dragon class ships and will create a virtual pipeline across the Atlantic; connection to the new 300 mile Mariner East pipeline from the Marcellus shale in Western Pennsylvania to the Markus Hook deep water terminal near Philadelphia, with new export facilities and storage tanks. To receive the gas, Ineos has built the largest two ethane gas storage tanks in Europe at Rafnes, Norway and Grangemouth, UK. Ineos will use the ethane from US shale gas in its two gas crackers at the two sites, both as a fuel and as a feedstock. It is expected that shipments to Grangemouth will start later this year.   “We are nearing the end of a hugely ambitious project that has taken us five years. I am proud of everyone involved in it and I believe that Ineos is one of very few companies in the world who could have successfully pulled this off. I can’t wait for the Ineos Intrepid to finally get to Norway and complete the job,” Ratcliffe says.     

    Producers in denial about chems market shifts - consultants

    07 March 2016 13:46 Source:ICIS News

    denialLONDON (ICIS)--Management teams at some petrochemical companies are not fully facing up to the reality of the extent of shifts that have rippled through the market in recent years, the co-authors of a report by ICIS Analytics & Consulting and International eChem said on Monday.

    Firms looking to maintain course in spite of the global downturn and demographic shifts in many key markets are avoiding facing up to the reality of the current state of the economy, according to International eChem’s Paul Hodges.

    “The first reaction to a shock is usually denial,” he told ICIS.

    “People adopt a position of ‘It’s not great, but I can carry on with what I’m doing, I just need to be a little smarter,’” he said. “That is the comfortable middle, and we can’t go on like that.”




    Attached Files
    Back to Top

    Oil and Gas

    IEA Says Oil Price May Have Bottomed as High-Cost Producers Cut


    Oil prices may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus, the International Energy Agency said.

    Production outside the Organization of Petroleum Exporting Countries will decline by 750,000 barrels a day this year, or 150,000 barrels a day more than estimated last month, the agency said. Markets are also being supported by output losses in Iraq and Nigeria, and as Iran restores production more slowly than planned following the end of international sanctions, it said.

    “There are signs that prices might have bottomed out,” the Paris-based adviser to 29 countries said in its monthly market report on Friday. “For prices there may be light at the end of what has been a long, dark tunnel” as market forces are “working their magic and higher-cost producers are cutting output.”

    Oil prices have recovered 50 percent from the 12-year lows reached in January as U.S. shale production retreats and as some OPEC members led by Saudi Arabia reached a tentative accord with Russia to maintain output at current levels. This “freeze” deal, while currently supporting prices, is unlikely to have a substantial impact on markets in the first half of the year, the IEA said.

    The agency’s view on prices is a shift from last month’s report, in which it said that crude could sink further as the market remained “awash in oil.” Brent futures traded at about $40 a barrel in London on Friday.

    The outlook for the balance of supply against demand in the first half is “essentially unchanged” from last month, the IEA said. World oil consumption will increase by 1.2 million barrels a day, helping to reduce the global surplus from 1.7 million barrels a day in the first half to 200,000 a day in the last six months of the year. Last month it projected the second-half surplus would be 300,000 a day. The agency repeated that it could lower the demand estimate as the price recovery curbs U.S. appetite for gasoline.

    Inventories in the developed world contracted last month for the first time in a year from the “comfortable” levels recorded in January, according to the report.

    The return of Iran after January’s nuclear agreement lifted sanctions on its oil trade “has been less dramatic than the Iranians said it would be” and further recovery will be “gradual,” the agency said. While the OPEC member vowed to restore 500,000 barrels a day as soon as sanctions ended, it instead boosted output by 220,000 barrels a day in February to 3.22 million, the highest in four years.

    Production from OPEC’s 13 members slipped by 90,000 barrels a day to 32.61 million a day in February as the increases in Iran were countered by declines in Iraq, Nigeria and the United Arab Emirates. OPEC is still pumping 700,000 barrels a day more than the average amount required from the group this year, the IEA’s data shows.

    About 600,000 barrels of Iraq’s exports have been halted by the closure of its northern export pipeline, while the suspension of Nigeria’s shipments of the Forcados grade -- amounting to 250,000 barrels a day -- “may be in place for some time.”

    U.S. oil production will decline by 530,000 barrels a day this year as the price rout takes its toll on investment and drilling, the IEA said. The agency also lowered its supply outlook for Brazil and Colombia.

    “Without an increase in demand expectations high cost oil suppliers will continue to bear the brunt of the market-clearing process,” the agency said. “It is clear that the current direction of travel is the correct one, although with a long way to go.”

    Before it's here, it's on the Bloomberg Terminal.

    http://www.bloomberg.com/news/articles/2016-03-11/iea-says-oil-price-may-have-bottomed-as-high-cost-producers-cut

    Attached Files
    Back to Top

    Oil falls after report March Moscow meeting is off


    Oil prices extended losses on Thursday following a report a meeting between oil producers to discuss a global pact on freezing production is unlikely to take place in Russia on March 20.

    Sources familiar with the matter say the meeting was likely to be scuttled, as OPEC member Iran is yet to say whether it would participate in such a deal.

    "They are not agreeing on the meeting. Why would the ministers meet again now? Iran says they will not do anything," said an OPEC source from a major producer. "Only if Iran agrees, things will change."

    OPEC officials including Nigeria's oil minister have said a meeting would take place in Moscow on that date, potentially as the next step in widening an agreement to freeze output at January levels struck by OPEC members Saudi Arabia, Venezuela and Qatar plus non-member Russia last month

    "Fundamentally you would expect prices to weaken from here because we're about to head into peak refinery turnaround season," said Virendra Chauhan, an analyst at Energy Aspects.

    "We expect weakness in the physical market as demand from refineries comes off."

    Global demand for crude oil typically dips when refineries around the world enter seasonal maintenance in spring, ahead of peak summer demand.

    The focus lies on a potential agreement to rein in output between producers from the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and non-OPEC exporters including Russia.

    http://www.cnbc.com/2016/03/09/oil-prices-dip-as-global-oversupply-outweighs-strong-demand.html?utm_source=twitterfeed&utm_medium=twitter
    Back to Top

    Shrinking oil reserves crimp Iraqi Kurdistan's allure


    A string of downgrades to Iraqi Kurdistan's oil reserves is a fresh blow to the autonomous region's fledgling oil industry already crippled by conflict, political strife and low crude prices.

    The revisions - resulting from a closer inspection of oilfields after drillers hit more water than expected - take the shine off one of the world's largest oil and gas reserves, which had drawn investors such as Exxon Mobil.

    A further loss of faith in the region's oil bonanza also pressures the debt-ridden Kurdistan Regional Government (KRG), which has struggled to ramp up production and exports due to pipeline outages and conflict with Islamic State militants.

    "The recent reserve downgrades are another blow to optimism about Kurdish oil production," said Richard Mallinson, geopolitical analyst at consultancy Energy Aspects.

    "While there are substantial amounts of oil in this underexplored province, companies are finding it is not as easy to find or produce in the quantities initially expected."

    Among the handful of producers still operating in the region, three have in recent months reviewed their estimates of proven oil reserves or reduced output due to geological problems.

    Several fields in different areas have, nevertheless, been unaffected by the revisions. For example, Shaikan, operated by Gulf Keystone in the north of the region, saw its reserves upgraded last year to 639 million barrels (mmbbls).

    The region still boasts one of the world's lowest production costs, at around $20 a barrel.

    Genel Energy lost more than a third of its market value last month after the London-listedcompany halved the reserves estimate for Kurdistan's largest operational field, Taq Taq, to 356 mmbbls and wrote down its value by $1 billion.

    The revision means more than half of the 80,000-barrels-per-day field's reserves have been produced. Genel also operates a second field, Tawke, whose reserves were little changed at 631 mmbbls.

    Water levels in the six-year-old Taq Taq started rising rapidly in the second half of last year, prompting a study by consultancy McDaniel & Associates that revealed the porosity of the rock - the ability to access oil - was overstated, leading to the revision, Genel said.

    Tony Hayward, Genel's chief executive and a former boss of BP, said in an analyst call that the downgrade was "clearly very disappointing for ourselves and the Kurdistan Regional Government".

    http://www.reuters.com/article/iraq-kurds-oil-idUSL5N16F3F4
    Back to Top

    Indian reforms aim to unlock $40 bln of oil and gas output


    Energy demand in India far outstrips consumption, but regulated low prices for gas from prolific but challenging deepwater fields have deterred investment in the sector.

    Under the reforms, companies will have more freedom to set the price of gas from new discoveries and existing finds not yet in production. But they will be subject to a ceiling price set according to the landed price of alternatives such as fuel oil, naphtha, coal and liquefied natural gas, Oil Minister Dharmendra Pradhan told a news conference. The ceiling price would be reviewed every six months. 

    This will help boost gas output by at least 35 million cubic metres a day (mmscmd) for 15 years, equivalent to a total of 6.75 trillion cubic feet over that period, Pradhan said. India's current gas production is about 90 mmscmd.

    The move will benefit companies like Oil and Natural Gas Corporation, the country's top explorer, and Gujarat State Petroleum Corp, a government-run firm in the home state of Prime Minister Narendra Modi.

    ONGC said last month it wanted higher gas prices before it starts production from its east coast deepwater block.

    Reliance Industries, currently in a legal battle with the government over gas pricing, will have to either withdraw its case or wait for it to conclude before it can benefit from the new rules.

    An oil ministry official said there would be no immediate output increase as production from these difficult fields would take at least three years to come on stream.

    India, which imports two-third of its oil needs, will also offer a common exploration licence for different hydrocarbons like oil, natural gas, shale oil and gas and coal bed methane, in order to more quickly tap its vast resources.(bit.ly/1TNXyuq)

    Pradhan said the new proposal would help reduce government intervention and could boost foreign investment in Indian oil and gas when global oil prices recover.

    India has also decided to extend the exploration licences of 28 discovered oil and gas fields, awarded mainly to ONGC and Oil India, without bidding.

    The cabinet granted control of the western offshore Ratna and R-Series oil and gas fields to ONGC. The fields stopped production in 1996, when they were awarded to the Essar Group controlled by India's billionaire Ruia brothers.

    "Resource worth 2.61 trillion rupees ($38.92 billion) will be brought to production as a result of today's decision," Pradhan said.

    http://www.reuters.com/article/india-oil-idUSL4N16I3XF
    Back to Top

    Yamal LNG’s Train 1 to start without additional financing


    Yamal LNG’s first liquefaction train will be launched without additional financing, according to Novatek’s department head Stanislav Shevkunov.

    The company intends to bring the first train, with the capacity to produce 5.5 million tons of LNG per year, online in 2017 as planned, Shevkunov told the media on Thursday, Reuters reports.

    Novatek, together with its partners Total of France, and China National Oil & Gas Exploration and Development Corporation is looking to add an additional US$12 billion loan from Chinese banks in order to close the project’s financing.

    The company’s CEO Leonid Mikhelson was reported as saying on Wednesday that the company expects to have the external financing secured in the next two to three months.

    The project will have three trains with a total production capacity of 16.5 million tons per year.

    http://www.lngworldnews.com/report-yamal-lngs-train-1-to-start-without-additional-financing/
    Back to Top

    Canacol Energy announces combined test rate of 66 MMSCFPD from Oboe-1 well in Colombia


    Canacol Energy Ltd.  is pleased to announce that Oboe 1, an appraisal well drilled in its Clarinete gas field on the VIM 5 Exploration and Production Contract, has tested at a final rate of 13 million standard cubic feet per day (2,281 barrels of oil equivalent) of dry gas with no water from the third and shallowest test interval within the Cienaga de Oro ('CDO') reservoir.

    This flow test is the third of three separate tests executed on three separate gas bearing reservoir intervals within the CDO reservoir encountered in the Oboe 1 well.

    The first test interval deeper within the CDO tested at a final rate of 26 MMscfpd (4,561 boepd) as reported on February 25, 2016, while the second test interval flowed at a final rate of 27 MMscfpd (4,737 boepd) as reported on March 2, 2016. Canacol, through its wholly owned subsidiary CNE Oil & Gas S.A.S., holds a 100% operated interest in the VIM 5 E&P contract.

    http://www.oilvoice.com/n/Canacol-Energy-announces-combined-test-rate-of-66-MMSCFPD-from-Oboe1-well-in-Colombia/a2e235ce852d.aspx?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29
    Back to Top

    U.S. Shale Firms Set to Go ‘DUC’ Hunting to Shave Costs


    The number of drilled but uncompleted wells in the U.S. is set to fall in 2016, according to Bloomberg Intelligence, as DUCs provide struggling exploration and production companies a less capital-intensive way of bringing new wells online.

    Since the oil price began its descent in June 2014, DUCs have doubled to about 4,000.

    “Inventory changes will likely vary by region, such as in North Dakota, where operators such as Continental Resources are expecting to see DUC levels grow as they continue to drill faster than they complete wells,” said Bloomberg Intelligence energy analyst William Foiles.

    “Abnormal horizontal DUCs located in fringe acreage will almost surely remain uncompleted in 2016 without a substantial increase in oil and/or gas prices,” said Bloomberg Intelligence energy analyst Andrew Cosgrove. "The inventory will also work to provide a ceiling on prices should they spike, as operators would likely move quickly to complete DUCs should prices experience a significant rally," he said.

    http://www.bloomberg.com/news/articles/2016-03-10/u-s-shale-firms-set-to-go-duc-hunting-to-shave-costs
    Back to Top

    Keystone Pipeline Operator TransCanada in Takeover Talks


    TransCanada Corp., the company behind the controversial Keystone XL oil pipeline project, is in takeover talks with Columbia Pipeline Group Inc., a U.S. natural-gas pipeline operator with a market value of about $8 billion.

    The companies could reach a deal in the coming weeks, according to people familiar with the matter. Details of the possible deal—including the role of Columbia Pipeline Partners LP, a publicly traded affiliate of Columbia Pipeline Group—couldn’t be learned. The negotiations could still break down, the people cautioned.

    With a typical takeover premium and including Columbia Pipeline Group’s debt load of nearly $3 billion, a deal could be worth well over $10 billion.

    TransCanada has struggled to build new oil pipelines amid public and government concern that the projects would harm the environment and foster reliance on fossil fuels. The U.S. in November rejected the Calgary, Alberta, company’s proposed Keystone XL pipeline, which would have transported oil from Canada’s landlocked oil sands to Gulf Coast refineries.

    Meanwhile, TransCanada’s proposed C$15.7 billion ($11.85 billion) Energy East pipeline, which would carry crude from the western Canadian provinces of Alberta and Saskatchewan to refineries on the country’s east coast, also faces hurdles after the province of Quebec said this month that it would seek an injunction to ensure the project meets environmental guidelines. Energy East, even if approved, isn’t scheduled to go into service until 2020.

    TransCanada, which also has power operations, had revenue of C$11.3 billion last year, up about 11%, and a net loss of more than C$1 billion. It currently has a market value of about $26 billion.

    Houston-based Columbia Pipeline Group owns about 15,000 miles of gas pipelines from New York to the Gulf of Mexico, together with one of the country’s biggest underground storage systems and related gathering and processing assets. Most of its assets overlay the Marcellus and Utica shale formations beneath Pennsylvania, West Virginia and Ohio.

    It had net income of $307.1 million last year, up about 15%. Revenue declined slightly to $1.33 billion.

    The company was spun off from NiSource Inc., a natural-gas utility operating in seven eastern states, in the middle of last year. Shares of both Columbia Pipeline Group and Columbia Pipeline Partners have fallen sharply since then.

    Columbia Pipeline Group owns the general partner of Columbia Pipeline Partners, a master limited partnership that holds a stake in Columbia Pipeline Group’s operating assets through an entity called Columbia OpCo. Columbia Pipeline Partners went public early last year.

    http://www.wsj.com/articles/keystone-pipeline-operator-transcanada-in-takeover-talks-1457627686
    Back to Top

    Alternative Energy

    Lynas narrows half-year loss


    Rare earths miner Lynas has narrowed its interim loss on the back of higher output and revenue. Its pre-tax loss for the six months to December 31, improved to A$66.1-million, compared with a loss before tax of A$103.5-million in the previous corresponding period. 

    During the interim period under review, sales volumes grew by 62% to 5 773 t, reflecting an improvement in production rates, consistent demand for Lynas’s products and quality improvements for cerium and lanthanum product. Revenue for the period also grew by 43%, to A$93.2-million. Lynas noted that the lower revenue growth, compared with the volume growth, reflected the historically low rare-earth prices achieved during the period, with rare-earth prices remaining some $10/kg to $11/kg lower than average levels experienced in 2014 and early 2015.

     “Despite these extremely challenging market conditions, the company believes that the underlying market dynamics remain favourable to Lynas and the work done to improve production and cost during this time will deliver a robust foundation for future success,” the company told shareholders. Lynas added that further production increases and continuing tight control of costs would be essential to operate successfully in the current difficult market conditions.

    It is our preference that if you wish to share this article with others you should please use the following link:

    http://www.miningweekly.com/article/lynas-narrows-half-year-loss-2016-03-10
    Back to Top

    Uranium

    China to boost nuclear fuel reserves to feed new reactors


    China will expand its strategic uranium reserve as part of its "five-year plan" for 2016-2020, with the aim of ensuring it has enough fuel to supply a massive programme of new nuclear reactors.

    Beijing, which began stockpiling uranium in 2007 and is estimated by the World Nuclear Association to have 74,000 tonnes of inventory - or about nine years of current demand - does not disclose details of its reserves.

    However, demand is expected to outstrip domestic supply in coming years and a move to increase reserves could give a boost to depressed global prices.

    "We have been importing over the last few years when the price has been low," said Sun Qin, chairman of the state-owned nuclear project developer, the China National Nuclear Corporation, adding the time was right to build up stockpiles.

    In its five-year plan released this week, the government said it would "expand the scale of natural uranium reserves", likely signalling the construction of new storage facilities as with oil six years ago.

    The Shanghai Nuclear Power Office estimates China's natural uranium demand is likely to reach 11,000 tonnes by 2020, and rise to 24,000 tonnes in 2030, outstripping production from domestic mines and China-owned mines overseas.

    The shortfall was expected to rise from 2,600 tonnes in 2020 to about 10,900 tonnes a decade later, it said.

    Increased uranium stockpiles would ensure China would not be at the mercy of supply disruptions or short-term fluctuations in market prices.

    The latest five-year plan also confirmed the country's intention to double its nuclear generation capacity to 58 gigawatts (GW) by the end of 2020, up from 28.3 GW at the end of last year, slightly less than 2 pct of total generation capacity.

    To meet the target, China, which currently has 30 operating reactors, will need to build around six new reactors a year, although it is expected to build well over 100 new units by 2030 as it tries to ease its dependence on fossil fuels and create a nuclear energy industry capable of competing globally.

    The 58 GW target will raise China's uranium demand to about 15 percent of the global market, according to the World Nuclear Association.

    http://www.reuters.com/article/china-uranium-idUSL4N16I1W7
    Back to Top

    Agriculture

    BHP Scales Back Canada Potash Spending Amid Commodities Downturn


    BHP Billiton Ltd., the world’s biggest mining company, is reducing spending on a potash mine in the Canadian prairies by about one-third amid the decline in global commodity prices.

    The Australian company is allocating less than $200 million in capital expenditure in the current financial year to develop and study the feasibility of the Jansen project, down from $330 million in the previous 12 months, said Giles Hellyer, president of BHP’s Canadian unit.

    “We’re doing more with less,” Hellyer said in a telephone interview from Saskatoon, Saskatchewan. “The intent is to be a lot more effective and efficient in what we’re doing and complete the work over a slightly longer time horizon.”

    BHP has so far approve$3.75 billion to a feasibility study and initial construction work on the project, which has yet to get a final go-ahead from the company. Construction crews at the site are excavating and lining two mine shafts, which may be complete in the next two to three years. Commercial production won’t start before 2020.

    Potash prices have tumbled amid increased production. Farmers are spending less on fertilizer amid bumper crops and lower agricultural commodity prices. Rival producer Potash Corp of Saskatchewan Inc. idled one of its mines in January in response to the oversupply.

    BHP remains confident about the long-term demand outlook for potash, seeing growth of about 3 percent a year, Hellyer said. And while BHP reduced the number of workers at Jansen in 2015, it will probably add employees in the next 12 to 18 months, he said.

    Potash prices in the Gulf of Mexico have fallen 44 percent over the past year to $200 a ton, according to data from Green Markets.

    “At the moment we’re focused very much on developing a robust case for Jansen,” Hellyer said. “We continue to believe in those long-term fundamentals in potash and the long-term story around the requirements for new capacity beyond 2020.”

    http://www.bloomberg.com/news/articles/2016-03-10/bhp-scales-back-canada-potash-spending-amid-commodities-downturn
    Back to Top

    Precious Metals

    Weak rouble and higher sales lift profit at Russia's Polyus Gold


    A weak rouble and improved sales helped Russia's largest gold producer Polyus Gold post a 47 percent year-on-year rise in adjusted net profit of $901 million last year.

    Reduced costs due to the devaluation of the rouble and increased sales lifted earnings before interest, taxation, depreciation and amortisation (EBITDA) by 25 percent compared to the previous year to $1.3 billion, Polyus Gold said on Thursday.

    "The weaker rouble positively affected the group's operating margins in 2015, due to the majority of its costs being rouble -denominated, and the U.S. dollar being the reporting currency," Polyus said in a statement.

    The results follow a net loss of $182 million in 2014 when the company's bottom line was hit by non-cash write downs. Net profit in 2015 totalled $1.1 billion, Polyus said.

    Revenue slipped 2 percent on an 8 percent fall in global gold prices, it said.

    The company, controlled by billionaire Suleiman Kerimov and his partners, has also been supported by its gold price hedging programme which helped offset lower bullion prices.

    Polyus said it agreed contracts in February to hedge 600 thousand ounces of gold sales over the next four years: 100 thousand ounces annually for the first three years and 300 thousand ounces in the fourth year.

    Polyus, which delisted from the London Stock Exchange in December, said it expects to produce between 1.76 and 1.80 million ounces of gold this year.

    The company said earlier on Thursday its board of directors had recommended no dividend payments for 2015.

    http://www.reuters.com/article/russia-polyus-results-idUSL5N16I1CA
    Back to Top

    Base Metals

    Expected shortages boost crowd-pulling power of copper mines


    An expected global shortage of copper in years to come has thrown a spotlight on the value of mines that produce the metal, with scouts from private equity firms, trading houses and miners sniffing out potential targets.

    Strong interest in good quality copper assets was recently highlighted by Sumitomo Metal Mining buying another 13 percent stake in Freeport-McMoRan's Morenci mine for $1 billion.

    Earlier on Thursday, Swedish mining and smelting group Boliden struck a deal to buy the Kevitsa mine in northern Finland for a cash consideration of $712 million.

    "Copper is the most sought after commodity, it's a good time to buy copper assets now, there are some very visible deficits coming up at the end of this decade," said Simon Lovat, a commodity analyst at fund firm Carmignac.

    Forecasts for more than two years out are difficult as much could change, but there are some; Deutsche Bank analysts expect small surpluses this year and next, a deficit of 280,000 tonnes in 2018, 350,000 in 2019 and 280,000 in 2020.

    The problem is mainly on the supply side, partly in top producer Chile, where output has slipped in recent years.

    Chile's copper output last year was 5.76 million tonnes, about 25 percent of the global total, and expectations are for further falls due to deteriorating ore grade and a lack of investment in the mining and power industries.

    Elsewhere around the world, the quality of the ore is not what it was and, despite copper's surge from $1,500 to above $10,000 a tonne between 2002 and 2011, no new, large, game-changing deposits have been found.

    The prospect of deficits has attracted attention.

    "Major Japanese trading houses trade commodities locally and internationally. They have over time been increasing their exposure to mining," said Raj Karia, Head of Corporate, M&A and Securities at Norton Rose Fulbright.

    "Trading houses broadly should be looking to pick up assets to integrate their trading operations with ownership of assets. There is substantial private equity capital available for mining, some estimate about $10 billion globally."

    Private equity firms looking at mining include Madison Dearborn, Denham Capital Management, KKR, Apollo Global management, Resource Capital Funds and Orion Resource Partners, according to data provider Preqin.

    Banking sources say private equity on average accounts for more than 50 percent of participants in potential mining M&A deals. "They are there in case the process fails, they can then scoop up distressed assets for a song," one banker said.

    X2 Resources, a mining venture, supported by Noble Group, TPG Capital, sovereign wealth funds and pension investors, is also in the fray.

    Rio Tinto's Chief Executive Sam Walsh last month said his team was keeping an eye out for top-tier assets, particularly in copper.

    South32 also recently joined the ranks of miners willing to make acquisitions. "Copper is obviously attractive given the supply demand fundamentals," the company's Managing Director Graham Kerr said in February.

    "The Chinese are there too, they need copper, they have to import it," a banking source said.

    Copper mines under the hammer include Glencore's Lomas Bayas mine in Chile and Cobar in Australia.

    But overall, though there are many mining assets up for sale, few produce copper. So, the focus will increasingly turn to smaller copper miners such as First Quantum and Central Asia Metals, with low production costs.

    "Good copper mines are a compelling investment, because they are a depleting asset," said Allianz Global Investors UK equities portfolio manager Matthew Tillett, who recently bought shares in both companies.

    "The supply numbers analysts have in their models are unlikely to happen in reality if prices aren't high enough...My main concern is demand coming in below expectations."

    Others agree much depends on China, the world's largest consumer of the metal used in power and construction, where demand growth slowed to around 2 percent last year and is expected slow further over coming years, possibly towards zero.

    http://www.reuters.com/article/copper-deficits-ma-idUSL5N16I28I

    Attached Files
    Back to Top

    Steel, Iron Ore and Coal

    Daqin Feb coal transport down 27.4pct on year

    Daqin Feb coal transport down 27.4pct on year

    Daqin line, China’s leading coal-dedicated rail line, transported 23.21 million tonnes of coal in February this year, sliding 25.5% on month and down 27.47% on year – the 18th consecutive year-on-year drop, said a statement released by Daqin Railway Co., Ltd on March 10.

    In February, Daqin’s daily coal transport averaged 0.8 million tonnes, 20.8% lower than January’s 1.01 million tonnes.

    Daqin rail line realized coal transport of 54.39 million tonnes in the first two months this year, falling 22.5% year on year.

    Over 2015, Daqin transported a total 396.99 million tonnes of coal, down 11.82% on year, accounting for 94.52% of its annual target of 420 million tonnes.

    In addition, Zhunchi rail line (Waixigou, Inner Mongolia-South Shenchi, Shanxi) and Mengji rail line (Ordos, Inner Mongolia-Caofeidian port) were put into commercial operation in September last year and January 2016, respectively, which would effectively help divert coal transport by Daqin line.

    Thus, 20 million tonnes of coal from Shenhua Group and 12 million tonnes of coal from Yitai Group are expected to be transported by Zhunchi and Shuohuang rail lines to Huanghua port this year, and 10 million tonnes of coal from Inner Mongolia is likely to be transported via Mengji line to Caofeidian port.

    Inevitably, the overwhelming advantage of Daqin line may be dented to some degree, and its coal transport is forecast to reach 340-350 million tonnes this year, down 12.8% or so on year.

    http://en.sxcoal.com/0/142317/DataShow.html
    Back to Top

    Indian state-run ports Apr-Feb thermal coal imports up 13pct


    India's 12 major state-run ports handled 89.5 million tonnes of imported thermal coal over April 2015 to February 2016, up 13% from the same period a year ago, according to latest data from the Indian Ports Association.

    But coking coal imports fell by 3% to 28.3 million tonnes in the 11-month period of the current fiscal year 2015-16, from the corresponding period a year ago, the data showed.

    Paradip port on east coast received the maximum number of shipments of imported thermal coal over April to February, at 28.6 million tonnes, up 4% from a year ago.

    Paradip port also handled the highest coking coal volumes at 8 million tonnes, up 14% from the same period a year ago.

    The 12 ports are Kolkata, Paradip, Visakhapatnam, Kamarajar (Ennore), Chennai, V.O.Chidambaranar (Tuticorin), Cochin, New Mangalore, Mormugao, Mumbai, Jawaharlal Nehru Port Trust, or JNPT, and Kandla.

    http://en.sxcoal.com/0/142337/DataShow.html

    Attached Files
    Back to Top

    China's Dalian commodity exchange says to combat high volatility


    China's Dalian Commodity Exchange is aiming to curb volatility in iron ore futures trading by removing a 50 percent discount on trading fees for one transaction type and strengthening monitoring, an exchange spokesperson said on Thursday.

    The steps are aimed at preventing huge price swings accompanied by high turnover that has occurred in the Dalian iron ore futures recently, the exchange official said in a statement without giving a name.

    The 50 percent discount on trading fees when opening and closing positions in the same iron ore futures contract within one day will be removed starting on March 14, the exchange said in a separate statement.

    The exchange said it will intensify a crackdown on illegal trading to limit risk and stabilize the market. It will also strengthen monitoring on abnormal trading actions and transactions by affiliated accounts.

    The rapid rise in Dalian iron ore futures this week helped fuel a historic 19.5 percent rally on Monday in spot iron ore prices that many thought was largely driven by speculative buying given there have been no significant changes in supply-demand fundamentals.

    The most-traded May iron ore contract on the Dalian Exchange hit a series of trading limits this week, prompting the bourse to raise the daily trading limit and margins for iron ore futures since Wednesday's settlement.

    The volume of iron ore futures traded on Dalian on Thursday reached 10,458,552 contracts, according to the bourse's website. That number, which is double counted, translates to nearly 523 million tonnes of iron ore, or more than half of China's total iron ore imports last year.

    Spot iron ore .IO62-CNI=SI has gained nearly 40 percent so far this year, making it the best performing commodity so far in 2016.

    Gains in iron ore have been triggered by a rally in Shanghai steel rebar futures which have also hit a series of daily upward limits, as investors bet that low steel inventories and a potential pick-up in demand will lift prices.

    http://www.reuters.com/article/china-ironore-futures-idUSL4N16I3LJ
    Back to Top

    Iron ore futures jump again as Shanghai steel sees rebound


    Iron ore futures in China climbed 4 percent on Thursday and those in Singapore rose as well as Shanghai steel prices recovered to touch an eight-month high, suggesting a recent rally may not be done as yet.

    The renewed strength in ferrous futures could again lift bids for physical iron ore cargoes and push up the spot benchmark, which slid nearly 6 percent on Wednesday after spiking by a record 19.5 percent on Monday. "As long as steel prices keep going up there is always logic for iron ore prices to go up," said a Shanghai-based iron ore trader.

    Chinese steel mills are boosting production ahead of April and May, the months that make up the seasonal peak for steel demand in China, the trader said.

    Those gains bode well for the spot benchmark, which on Wednesday tumbled 5.9 percent to $59.60 a ton, according to The Steel Index (TSI). That followed Monday's 19.5 percent rally that was the biggest single-day percentage gain according to TSI data that dates back to 2008.

    A rebound in Chinese steel futures helped drive the market rally in iron ore prices on Thursday.

    Argonaut Securities analyst Helen Lau said she expected China's crude steel production to have risen by 2 percent to 3 percent from January to February due to a recovery in seasonal demand.

    But Lau was concerned that higher production and declining exports would "worsen domestic oversupply."

    China's steel exports dropped to 8.11 million tons in February, falling for a second straight month.

    http://en.chinamining.com.cn/News/2016-03-11/1457661363d75606.html
    Back to Top

    BHP/Vale's Samarco sees mine restarting at 19 million tonnes



    Samarco, joint venture between Brazil's Vale SA (VALE5.SA) and Australia's BHP Billiton (BLT.L), expects to restart production at its iron ore mine in Minas Gerais by the start of the fourth quarter, its chief executive told Reuters on Thursday, less than a year after a burst tailings dam there killed 19 people.

    CEO Roberto Carvalho said iron ore pellet production for the initial two to three years would likely be at a reduced 19 million tonnes per year as the company develops a long-term plan to store the mining waste known as tailings.

    Before the dam disaster, Samarco was producing about 30 million tonnes per year.

    "All our focus is turning to the restart," Carvalho said at the company's headquarters in Belo Horizonte, the capital of Brazil's mining heartland. "We have talked to our clients, they have given us all the help possible and are awaiting the return of Samarco."

    Samarco is an influential miner in the pellet market. Before the dam spill in November, it accounted for about 20 percent of the global market for this high-grade steelmaking raw material that attracts a premium from mills.

    Though the restart depends on authorization from Minas Gerais state environmental body and mining regulator DNPM, Carvalho said the settlement with the government of a 20 billion-real ($5.53 billion) lawsuit for damages caused by the spill has provided positive momentum.

    Brazil's government considers the dam burst the country's worst-ever environmental disaster. The mud flow of mining waste killed 19 people, forced hundreds to leave their homes and polluted one of the country's main rivers.

    Under the government settlement, Samarco must pay 2 billion reais this year for clean up and compensation, an amount Carvalho says the company can afford.

    But payments over the coming years will depend on Samarco returning to production. Any shortfall over the 15 years the accord lasts must be covered by shareholders Vale and BHP.

    Samarco has already taken the first steps towards reopening the mine, applying for permission to use old mining pits to store tailings. This is a temporary solution as the miner awaits results of the investigation into the cause of the dam burst, after which it can develop a long-term production plan.

    The cost of re-opening the mine would not be expensive, Carvalho said. "There's nothing complicated that needs to be installed."

    http://uk.reuters.com/article/uk-brazil-damburst-samarco-exclusive-idUKKCN0WC2PU

    Attached Files
    Back to Top

    Algeria in talks with China over iron mining project


    Algeria is in talks with China to exploit one of the North African country's largest mining deposits as the OPEC member tries to diversify its economy away from oil and gas, an industry and mines ministry official said on Thursday.

    Negotiations started last month in Algiers with officials from China Civil Engineering Construction Corporation (CCECC) for a partnership in the Gara Djebilet iron deposit in the southwestern province of Tindouf, the official told Reuters.

    Algeria relies heavily on oil and gas to finance its budget and pay for a growing imports bill. The drop in global crude oil prices almost halved its energy earnings for 2015, forcing the government to cut spending and look to diversify its economy.

    The government has delayed the Gara Djebilet project several times, citing "technical difficulties".

    "This is the first time we talk with a foreign partner about the project," the official said. "Economic feasibility and technical studies were successful."

    Officials have estimated reserves in the Gara Djebilet deposit at around 2.5 billion tonnes of iron ore.

    Talks with China also includes the construction of a 950-km railway line linking Tindouf to the Bechar province to help transport extracted iron to steel plants.

    Steel imports cost Algeria around $10 billion a year due to growing domestic demand from a drive to modernise infrastructures and build thousands of subsidized housing units as part of the government's social spending.

    Algeria imports most of the goods it needs due to insufficient domestic production caused by a lack of investment in its non-energy industries, including mining.

    The industry and mines ministry official gave no details on how the Gara Djebilet project would be financed.

    Officials have said Algeria would turn to China to fund several projects including a $3.2 billion port, the first time it has sought external financing in more than a decade as it looks for alternative funding because of the oil price drop.

    http://www.reuters.com/article/algeria-china-mining-idUSL5N16I2TR
    Back to Top

    Ex-Hanlong head sentenced to eight years for insider trading in Australia


    An Australian court jailed on Friday the former head of China's Hanlong Mining Investment Pty Ltd for eight years, Australia's corporate regulator said, in one of the country's harshest sentences for insider trading.

    The Supreme Court of New South Wales state handed down the sentence of eight years and three months to Hui Xiao, also known as Steven Xiao, on three charges relating to 102 illegal trades while he was managing director of Hanlong.

    "This sentence demonstrates the seriousness of insider trading," Cathie Armour, commissioner of the Australian Securities and Investment Commission, said in a statement.

    "Maintaining confidence in the integrity of our financial markets is vital," Armour added.

    In September, Xiao pleaded guilty to two charges of insider trading involving 65 illegal trades related to Sundance Resources Ltd and Bannerman Resources Ltd in July 2011, when he was Hanlong Mining's managing director.

    Hanlong made takeover offers for Sundance and Bannerman in 2011.

    Xiao also admitted to a third set of insider trading offences related to 37 illegal trades carried out in 2011.

    He has been in custody since being extradited from Hong Kong to Australia in October 2014.

    Another former Hanlong executive, Bo Shi Zhu, also known as Calvin Zhu, was sentenced to two years and three months in jail in Australia in 2013, having pleaded guilty to three counts of insider trading between 2006 and 2011.

    Hanlong called off a $1.23 billion offer for Sundance in April 2013 after missing funding deadlines. Talks with uranium explorer Bannerman on a A$143 million ($106.76 million) offer ended in late 2011 due to similar funding issues.

    http://www.reuters.com/article/us-hanlong-australia-insidertrading-idUSKCN0WD09M

    Attached Files
    Back to Top

    China steel cut plans not enough to solve sector woes: exec


    China's plan to close 100 million-150 million tonnes of poorly performing steel capacity in the next five years is unlikely to be enough to drag the stricken sector out of the doldrums, a parliamentary delegate and steel mill head told Reuters.

    As it steps up its efforts to deal with price-sapping capacity gluts in industrial sectors, Beijing has promised to force through the closure of hundreds of "zombie" steel mills and will also make funds available to deal with laid-off workers.

    But Zhang Wuzong, head of Shandong province's Shiheng Special Steel Group, said the targets laid out in an action plan in February would not be sufficient to tackle a surfeit of capacity estimated at around 400 million tonnes, especially as domestic steel demand continues to decline.

    "China's steel production is actually 800 million tonnes, and it should be at the 1.1 billion or 1.2 billion level, so getting rid of 100 million or 150 million isn't any good - 300 million or 400 million is more appropriate," he said.

    He said he expected domestic steel production to fall around 5 percent a year in the next five years to end the decade at around 600 million tonnes. Production last year was 803.8 million tonnes after dropping for the first time since 1981, with the sector now acknowledging that output has peaked.

    While urbanization will continue, China's cities already have massive housing surpluses, and infrastructure construction - including roads and railways - is already more or less complete, he said, further limiting steel demand.

    Prices of steel and iron ore have recently shown signs of recovering, driven by post-holiday restocking and the risk of capacity closures in the top steel producing city of Tangshan, but Zhang said that could not be sustained because it was not based on real improvements in underlying demand.

    "My view is that this is temporary and is a bubble," he said. "We shouldn't view this incorrectly. The recent recovery has political reasons and has been brought about by people's emotional needs."

    China has made 100 billion yuan ($15 billion) available to handle layoffs in the steel and coal sectors, with local governments entitled to apply for the funds once "zombie enterprises" have been shut down. But the money would not be used to resolve the thornier problem of bad debts.

    "This will not just be used to solve steel, but also coal and others, so the allocation to steel will be around a third and it won't solve the problems, and it won't solve the problems of asset losses," said Zhang.

    According to the China Iron and Steel Association, the debt ratio of major steel mills rose 1.6 percentage points to 70.1 percent last year, with total debts rising to 3.27 trillion yuan.

    "This debt will be solved gradually, and banks will bear certain losses - this is a certainty."

    http://www.reuters.com/article/us-china-parliament-steel-idUSKCN0WC0MI

    Attached Files
    Back to Top
    Commodity Intelligence LLP is Authorised and Regulated by the Financial Conduct Authority

    The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only.

    Officers and employees, including persons involved in the preparation or issuance of this material may from time to time have "long" or "short" positions in the securities of companies mentioned herein. No part of this material may be redistributed without the prior written consent of Commodity Intelligence LLP.